Question

ACC312 Federal Taxation

Application problems

Use the present value tables in Appendix A and Appendix B to compute the NPV of each of the following cash inflows:

a. $18,300 received at the end of 15 years. The discount rate is 5 percent.

b. $5,800 received at the end of four years and $11,600 received at the end of eight years. The discount rate is 7 percent.

c. $1,300 received annually at the end of each of the next seven years. The discount rate is 6 percent.

d. $40,000 received annually at the end of each of the next three years and $65,000 received at the end of the fourth year. The discount rate is 3 percent.

Answer 1

a. Present value of $18,300 received at the end of 15 years = $18300 * PVF(5%,15 years)

=$18300 * 0.4810

=$8802.3

b. Present value of​ $5,800 received at the end of four years and $11,600 received at the end of eight years =  $5800 * PVF(7%,4years) + $11600 * PVF(7%,8years)

= $5800 * 0.7629 + $11600 * 0.5820

= 4424.82 + 6751.2

= 11176.02

c. Present value of $1,300 received annually at the end of each of the next seven years = $1300* PVAF(6%,7years)

= 1300 * 5.5824

= 7257.12

d. Present value of $40,000 received annually at the end of each of the next three years and $65,000 received at the end of the fourth year = $40000 * PVAF(3%,3 years) + 65000 * PVF(3%,4 year)

=$40000 * 2.8286 + 65000 * 0.8885

= 113144 + 57752.5

=170896.5